The Mint Grad

Real FLC: Cutting out credit cards

FLC-IyaThe story below highlights the real life experience of a 20-something deep in credit card debt. An Ivy League alumna explains how she got out of debt, and tips for long-term financial loving care. Her story is one of a series that focuses on real money mistakes made by real people, and the realizations they form along their financial journeys.

It’s 1989 and the first week of classes for University of Pennsylvania freshman Iya D. She arrives on campus to find a sort of “welcome” fair, including tables staffed by credit card companies offering gifts and incentives for students opening accounts.

“At that time, credit cards were available to anyone; if you were 18 and breathing, you could get a credit card,” says Iya. “Of course, I signed up for every single one.”

Racking up bills

Surrounded by students from wealthy families who spent freely, Iya naturally wanted to fit in. She began putting everything on her credit card. If she could charge it, she would buy it. By the time Iya graduated, she had amassed $25,000 in credit card debt.

“Even though I’m a relatively intelligent person, for some reason, there was a mental disconnect for me that the transaction is not over after the swipe,” says Iya.

Dealing with debt

Iya realized there were consequences for her actions once the bill collectors started calling. She described the process of going through her statements and adding up the total amount of debt as one word: scary. Iya’s parents had helped her with college tuition but were not keen to help with this self-inflicted debt. Seeing no other option, she turned to a company that specialized in credit counseling after seeing a commercial that promised to help pay down debt.

“It was a traumatic experience. It was like going to credit card rehab,” Iya recalls. “I had to talk to a counselor and give them all of my credit cards. They cut them up right in front of me.”

The company helped Iya set up a budget and a payment plan after negotiating with credit card companies on her behalf to lower her interest rates and balance.

“I think what really happened, though, was that I finally rediscovered my responsible side.”

By sticking to her payment plan and cutting out frivolous spending, Iya was able to pay off her debt in three years, even though she had a modest-paying job and lived in New York City (where the cost of living is high). Although Iya has a corporate credit card used for work-related expenses, she doesn’t have even one personal credit card. Her experience with debt ultimately turned her off to credit cards forever.

“I only buy things I can afford and I stay within my means,” she says. “Anything I spend, whether it’s on a vacation, a TV or everyday items, comes right out of my bank account.”

Saving her credit score

Iya managed to revive her “very low” credit score back to one that would be considered impressive. It’s a major source of pride for Iya, because “it’s very liberating to have strong credit,” she explains. “It’s liberating to know you won’t be turned down for something on the basis of your score.”

Iya warns that “without credit in America, you’re nothing. You can make a ton of money but a million dollars in the bank is not the same as a good credit score.” She says she has friends that have good jobs and make plenty of money but cannot rent an apartment or take out a loan because of low credit scores.

Even though Iya doesn’t deal with credit cards anymore, she doesn’t dismiss their value.

“Credit cards used right will build up your credit history so it’s easier to take out loans for major purchases like a new car or home,” says Iya, “but it’s not just about building trust with lenders, it’s about entrusting yourself to pay back what you owe.”

She continues, “I gave myself a lot of tough love by putting myself through credit card rehab, but if you show yourself FLC routinely, it never has to get to that point.”

Tips for financial loving care

Iya provides tips and ideas for living a debt free life and getting out of any debt you might already have.

  • Carry cash
    Cash is better for your budget. For me, it’s a psychological thing; I hate to spend it. The thought of actually removing a 20 dollar bill from my wallet is devastating to me, even though I’ll whip out my debit card and put the same $20 on it with no problem.
  • Use credit cards strategically
    If you do use credit cards, make sure you take advantage of the rewards. My mother uses a bunch of different credit cards and each has a specific purpose. She knows the exact balance on them at all times and never carries any debt.
  • Pay your bills on time
    Set up automatic debit payments for your bills if you need to. This ensures that you don’t miss payments and damage your credit score in the process.
  • Be disciplined in your spending and saving
    Write out a budget and stick to it! Make savings goals you can stick to and ask your friends and family for support if you feel yourself wavering.
  • Don’t spend money you don’t have. 
    This goes back to my first point – carry cash!

If you’re already in debt, here’s my advice:

  • Face the issue
    As scary and overwhelming as it seems, you can’t tackle a problem until you admit one exists. Without facing the issue, you will be impeding your ability to live the life you want. Know that you can get yourself out of debt. There are many people who pay down debt daily and have gotten out of huge holes by staying focused.
  • Find a solution
    Once you admit an issue exists, you can start figuring out a way to fix it – whether that means seeking advice from your parents, friends, or professionals. It might be uncomfortable and take you a while, but at the end of the day, your debt will begin decreasing instead of increasing. Setting goals can help you track your progress over time.
  • Make regular payments on time 
    If you pay your bills on time, even just the minimum payment, you’ll help increase your credit score. You should monitor your credit reports annually and contact the three credit bureaus to make sure they remove items you’ve already paid off.

 


Financial Loving Care

 

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